Job Work Provisions under Revised Model GST Law – at a Glance:

Contributed by CA. Lalit Aggarwal

GST will be new world of opportunity for all the chartered accountants as well as other professionals. As all of us know that migration of existing assessees have been started. In era of competition every client is looking for complete solution under one roof. Job work is very common between manufacturer in India. Here we will try to understand Job work provisions under GST.

a.) Definition of Job Work: As per Sec 2(61) of the Model GST Law job work means undertaking any treatment or process by a person on goods belonging to another registered taxable person and the expression “job worker” shall be construed accordingly.

Thus job work means any person who undertakes any activity or carried on any process on goods belonging to another person. Such other person necessarily be a registered taxable person. If the person is unregistered one then the job work relation could not be established under GST law. Further, goods sent for job work should be taxable goods as duty liability will arise only when goods under consideration are taxable. In other words Job work provisions are not applicable to exempted or non-taxable goods or when the sender is a person other than registered taxable person.

This definition is much wider than the one given in excise Notification No. 214/86 – CE dated 23rd March, 1986 as amended, wherein job-work has been defined in such a manner so as to ensure that the activity of job-work must amount to manufacture. Thus the definition of “job work” itself reflects the change in basic scheme of taxation relating to job-work in the proposed GST regime.

b.) Definition of Principal: As per Sec 2(76) of the Revised Model GST Law principal means a person on whose behalf an agent carries on the business of supply or receipt of goods and/or services;

In Revised Model GST Law sec 55 itself referred the term principal. As per sec 55 of the Model GST Law principal means person who is sending the goods for job work.

2. Special procedure for removal of goods on job work (Sec 55)

(1) The Commissioner may permit (by special order with certain conditions) a registered taxable person (i.e. principal) to send taxable goods to a job worker for job-work without payment of tax. And after completion of job-work allow to-
(a) bring back such goods to any of place of business of principal without payment of tax, for supply there from on payment of tax within India, or with or without payment of tax for export, as the case may be, or
(b) supply such goods from the place of business of a job-worker on payment of tax within India, or with or without payment of tax for export, as the case may be.

Proviso to Sec 55:
The goods shall be permitted to be supplied from the place of business of a job worker in terms of clause (b) only if:
1. The “principal” declares the place of business of the job-worker as his additional place of business; or
2. Where the job worker is registered under section 23; or
3. Where the “principal” is engaged in the supply of such goods as may be notified in this behalf.

(2) The responsibility for accountability of the goods including payment of tax thereon shall lie with the principal.

Author Comments:1. Goods also can be sent for job work from one job worker to another job worker without payment of duty.2. Proviso to sec 55 is very important for migration point of view also. If any manufacturer wants to supply goods (which are not notified in this regards) from unregistered job workers premises then manufacturer must have to declare the place of business of the job-worker as his additional place of business.3. Now One important question arise that Whether goods sent by a taxable person to a job-worker will be treated as supply and liable to GST?We can find the solution of this question from “Schedule I”. “Schedule I” specified the matters to be treated as supply without consideration. But proviso to “schedule I” specifically exclude supply of goods by a registered taxable person to a job-worker in terms of section 55. It means supply of goods by a registered taxable person to a job-worker in terms of section 55 shall not be treated as supply of goods.

3. Registration of job worker under GST

1. As per schedule III of Model GST Law Every supplier shall be liable to be registered under this Act in the State from where he makes a taxable supply of goods and/or services if his aggregate turnover in a financial year exceeds Rs. 20 Lakhs /10 Lakhs (NE states including Sikkim).
2. Job-worker would be a supplier of services, he would be required to obtain registration if his aggregate turnover exceeds the prescribed threshold.
3. The supply of goods, after completion of job-work, by a registered job worker shall be treated as the supply of goods by the “principal” referred to in section 55, and the value of such goods shall not be included in the aggregate turnover of the registered job worker.

4. Input Tax credit provisions for job worker under GST

1. Section 55 which provides for special procedure for removal of goods on job work does not specify any time limit for receipt of goods back.
2. In the Model GST Law, aspects relating to taking input tax credit in respect of inputs/capital/scarp goods sent for job-work have been specifically dealt in Section 20.
3. Input taken mechanism when goods received back after job work with in stipulated time:

Situations

Stipulated time for return under Model GST Law

Availability of Input Tax Credit

Consequence If not received back within the stipulated time

1. If the inputs sent to a job-worker for job-work and the said inputs, after completion of job-work, are received back to ANY of his place of business.

1 Year from the date of being sent out of inputs

Yes, Available to principal

It shall be deemed that such inputs had been supplied by the principal to the
job-worker on the day when the said inputs were sent out. An amount equivalent to the input tax credit availed on such inputs has to be paid along with interest by principal. (Please note that the credit can be reclaimed when the inputs are actually received back.)

2. If the inputs are directly sent to a job worker for job-work without their being first brought to his place of business and the said inputs, after completion of job-work, are received back to ANY of his place of business.

1 Year from the date of receipt of the inputs by the job worker

Yes, Available to principal

3. If Capital Goods (other than moulds and dies, jigs and fixtures, or tools) sent to a job-worker for job-work and the said capital goods, after completion of job-work, are received back

3 Years from the date of being sent out of capital goods

Yes, Available to principal

It shall be deemed to be supplied by the principal to the job-worker on the day when the said capital goods were sent out. An amount equivalent to the input tax credit availed on such capital goods has to be paid along with interest by principal. (Please note that the credit can be reclaimed when the inputs are actually received back.)

4. If the Capital Goods (other than moulds and dies, jigs and fixtures, or tools) are directly sent to a job worker for job-work without their being first brought to his place of business and the said capital goods, after completion of job-work, are received back to ANY of his place of business.

3 Years from the date of receipt of the capital goods by the job worker

Yes, Available to principal

5. Moulds and dies, jigs and fixtures, or tools

No condition of receipt back

Yes, Available to principal

Not applicable

4. Any waste and scrap generated during the job work may be supplied by the job worker directly from his place of business on payment of tax if such job worker is registered, or by the principal, if the job worker is not registered.

5. Transitional provisions for job worker under GST

Presently, a manufacturer can sent material for job work without payment of excise duty. As per Model GST Law if inputs or/ and semi-finished goods were sent for job work prior to introduction of GST law and were lying with the job worker, declaration shall be submitted by both manufacturer and job worker within specified period. The goods can be brought back to place of Principal manufacturer within 6 months from the appointed day without payment of tax. However, this period of 6 months can be extended by Commissioner for period of 2 months. If the material is not returned within 6 months (or further 2 months if extension is granted) from the appointed day, tax will be payable by job worker or manufacturer.

6. Some test your knowledge questions

Q 1. Are the provisions of job-work applicable to all category of goods?
Ans. No, The provisions relating to job-work are applicable only when registered taxable person intends to send taxable goods. In other words, these provisions are not applicable to exempted or non-taxable goods or when the sender is a person other than registered taxable person.

Q 2. What is job-work?
Ans. Section 2(61) of the MGL provides that “job-work” means undertaking any treatment or process by a person on goods belonging to another registered taxable person and the expression “job-worker” shall be construed accordingly. This definition is much wider than the one given in Notification No. 214/86 – CE dated 23rd March, 1986 as amended, wherein job-work has been defined in such a manner so as to ensure that the activity of job-work must amount to manufacture. Thus the definition of jobwork tself reflects the change in basic scheme of taxation relating to job-work in the proposed GST regime.

Q 3. What are the provisions concerning taking of ITC in respect of inputs sent to a job-worker?
Ans. In the MGL, aspects relating to taking input tax credit in respect of inputs/capital goods sent for job-work have been specifically dealt in Section 20, which provides that the credit of taxes paid on inputs or capital goods can be taken in the following manner: Principal shall be entitled to take credit of inputs sent to a job-worker if the said inputs, after completion of job-work are received back in 1 year from the date of being sent out. In case the inputs are sent directly to the job-worker, the date shall be counted from the date of receipt of inputs by job-worker. Further an amount equivalent to the input tax credit availed on such inputs has to be paid along with interest, in case the inputs are not received back within the specified time. The credit can be reclaimed when the inputs are actually received back.

Q 4. Whether the principal is eligible to avail input tax credit of inputs sent to job worker for job work?
Ans. Yes, the principal is eligible to avail the input tax credit on inputs sent to job worker for job work in terms of Section 20 of the MGL.

Q 5. Whether principal has to reverse the input tax credit on inputs which have not been received back from the job worker within 1 year?
Ans. Yes, the principal has to reverse the credit along with interest on inputs which have not been received back from job worker within 1 year but he can reclaim the credit on receipt of inputs.

Q 6. What is the liability of the principal if the capital goods sent to job worker have not been received within 3 years from the date of being sent?
Ans. Principal has to pay an amount equal to credit taken on such capital goods along with interest. But he can reclaim the credit on receipt of inputs.

Q 7. Shall a manufacturer or a job worker become liable to pay tax if the inputs or semi-finished goods sent for job work under the earlier law are returned after completion of job work after the appointed day?
Ans. No tax shall be payable by the manufacturer or the job worker under the following circumstances:

• Inputs/ semi-finished goods are sent to the job worker in accordance with the provisions of the earlier law before the appointed day.
• The job worker returns the same within six months from the appointed day (or extended period of 02 months).
• Both the manufacturer and the job worker declare the details of inputs held in stock by
the job worker on the appointed day in the prescribed form.

Q 8. What happens if the job worker does not return the goods within the specified time?
Ans. Tax would be payable by the job worker. Further, the manufacturer will also be liable to pay tax on expiry of the specified time limit .

Q 9. Whether goods sent by a taxable person to a job-worker will be treated as supply and liable to GST? Why?
Ans. No. It will not be treated as a supply. In terms of proviso to Para 5 of Schedule I of the MGL the supply of goods by a registered taxable person (principal) to jobworker, in terms of Section 55, shall not be regarded as supply of goods. Therefore, it can be inferred that no GST shall be applicable on the goods supplied by the registered principal to a job-worker.

Q 10. Whether the goods of principal directly supplied from the job-worker’s premises will be included in the aggregate turnover of the jobworker?
Ans. No. It will be included in the aggregate turnover of the principal.

Q 11. Whether the job worker will have to be compulsorily registered?
Ans. No. Section 55 of MGL does not prescribe any such condition.

Q 12. Is a job-worker required to take registration?
Ans. Yes, as a Job-worker would be a supplier of services, he would be required to obtain registration if his aggregate turnover exceeds the prescribed threshold.

Q 13. Can a registered taxable person send goods without payment of tax to his job-worker?
Ans. Yes. Section 55 of the MGL provides that the registered taxable person (principal) can send the taxable goods to a job-worker for job-work without payment of tax. He can further send the goods from one job-worker to another job-worker and so on subject to certain condition.
It may be noted that provisions of Section 55 are not applicable if non-taxable or exempted goods are proposed to be sent for job-work.

Q 14. Whether the goods will be permitted to be supplied from the place of business of a job worker?
Ans. Yes. But only in cases where the job worker is registered or the principal declares the place of business of the job worker as his additional place of business.

Q 15. Can the principal supply the goods directly from the premises of the job-worker without bringing it back to his own premises?
Ans. Yes but with a rider that the principal should have declared the premises of such job-worker as his additional place of business or where the job-worker is a registered person or where the goods have been notified.

Q 16. Under what circumstances can the principal directly supply goods from the premises of job-worker?
Ans. The goods can be supplied directly from the place of business of job-worker without declaring it as additional place of business in two circumstances namely where the job-worker is a registered taxable person or where the principal is engaged in supply of such goods as may be notified in this behalf.

Note:Views presented in this article are personal view of the author. Information presented in this article is intended for information purpose only and does not constitute any legal opinion or advice. Readers and Users are requested to seek formal legal advice prior to acting upon any of the information provided herein.